We buy stocks in the expectation they’ll go higher and pay dividends, and that we will make money. But sometimes they just drift along or head lower. Nasty. But that leaves us time to decide on a new plan, if any. Not all stocks go up immediately after we buy and many need time to really deliver inflation-beating returns.
But sometimes disaster strikes, and here we don’t have a lot of time to process information.
The best local example was Steinhoff in December 2017. The news broke before the market opened that the CEO was out and the result delayed. Here the (hindsight) disaster response was easy: get out ASAP. A panic sell then would have got you out at a way better price than had you waited a day or three.
But at other times a disaster is ultimately not a disaster. Last July CrowdStrike* bricked millions of Windows computers around the world. The stock lost more than 20% in days, and eventually, over the next month, fell almost 50%. As a shareholder I posed the two simple questions I always ask in a disaster situation. How bad is this in the immediate term? How bad is this in the long term?
The answer here was that in the immediate term it was bad, very bad. But long term? The company’s security services remain best of breed, and it has a giant base of customers who can’t all just leave, as they’re tightly integrated. Now, about six months later, CrowdStrike is back at record highs.
More recently we saw Nvidia* being walloped by the release of DeepSeek, which claims to be able to develop a vastly cheaper AI platform. This led to a sell-off of almost 20%, and as I write, the stock remains under pressure after a small bounce.
AI will continue to boom and grow and new chips and industries will add to revenue
So let’s ask those two questions again.
How bad is this right now? Well, bad; the stock is expensive, and this puts a dent in future demand. But in the longer term, cheaper AI is good for the industry, as it will likely lead to faster and wider adoption. So Nvidia will keep selling its chips, and in addition it has many other avenues for chip revenue. The recent presentation by Nvidia CEO Jensen Huang at the CES 2025 event outlined multiple industries, such as driverless vehicles, that will fuel future growth.
So in the longer term the prospects remain strong — yes, dented to a degree, but AI will continue to boom and grow, and new chips and industries will add to revenue.
We’ve also seen this with Nvidia before. It used to be all about graphics processing units, better known as GPUs, for crypto mining, and in the crypto collapse of 2021 the stock lost about two-thirds before restarting its run higher.
So, yes, this is not fun, but it is also not life threatening, even at lofty valuations, and for this reason I remain a shareholder. But let’s be clear, it has changed part of the investment case for the stock. So we need to keep a close eye on results in the year ahead, especially on the demand for Nvidia’s high-end AI chips.
*The writer holds shares in CrowdStrike and Nvidia
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